Subsidy scheme urged in Energy Bill

The UK government should introduce incentives for electricity-saving measures to help cut consumer bills, according to an environmental think-tank.

The forthcoming Energy Bill needs to include a subsidy scheme that would pay companies for the electricity they help people to save, for example by replacing their appliances with more efficient alternatives, Green Alliance and WWF-UK said.

Such a scheme would encourage companies to help people cut their energy bills by using less electricity. And because measures to reduce energy use cost less than building new infrastructure, it would be a cheaper way of meeting the Energy Bill's aim of cutting carbon emissions while keeping the lights on, they said.

As it stands, the Energy Bill will put in place subsidies for new low-carbon power such as nuclear plants and wind farms to meet electricity demand, but does nothing to reduce the demand for power, a report by the green groups said.

Without amendment, it will reward the building of expensive power stations ahead of lower-cost energy efficiency, leaving people paying over the odds for their electricity.

They said the UK could learn from schemes abroad, such as ones in the US which include companies offering rebates on energy-saving appliances, replacing appliances for free for low-income consumers and providing no-cost finance for efficiency upgrades.

Bringing in an "electricity efficiency feed-in tariff" which pays for each unit of energy saved, or 'negawatt', would encourage companies to compete with each other to find innovative ways to help consumers save energy and money.

Companies could also receive payments for cutting their own energy use, for example a supermarket which invested in more efficient refrigeration units would be rewarded for the amount of electricity it saves.

The report estimates that with effective measures to reduce electricity, 40 per cent of demand could be avoided by 2030, which is the equivalent of the output of 15 nuclear power plants and would save more than £10bn on energy bills a year.

Green Alliance's director Matthew Spencer said: "The coalition can show it cares about hard-pressed families by making sure the energy system rewards energy saving as much as energy production.

"An electricity efficiency feed-in tariff is the simplest way of doing this, and evidence from the USA suggests that it will incentivise a wave of energy saving amongst businesses and households.

"The Energy Bill offers the opportunity to support negawatts as well as megawatts, and to do so at a lower cost to the UK economy."

David Nussbaum, chief executive of WWF-UK, said: "Energy efficiency is the obvious 'win-win' in the upcoming reform of our electricity market; keeping a check on rising energy bills while also reducing our dependence on fossil fuels.

"Thus far the draft Energy Bill has failed to recognise this gilt-edged opportunity and energy efficiency is conspicuous only by its absence."

The report said the electricity efficiency feed-in tariff could be designed to work alongside the 'green deal', which will cover the up-front costs of energy efficiency in homes, focusing on reducing the amount of heating people need to use.

Energy minister Greg Barker said: "Energy efficiency is the huge national opportunity we have ignored for too long.

"The coalition is determined to put that right but we need action across the whole economy, not just one sector. However, improving the efficiency of the electricity sector is key.

"That is why we will be launching our own comprehensive consultation on electricity demand reduction this autumn to inform the latest Energy Bill. So I greatly welcome this report and its ambitious ideas as a contribution to this process."